The scourge of negative gearing

Out of over 65,000 properties very few were suitable to rent by those on benefits or minimum wage:

The survey covered 65,614 properties right across Australia. It used the commonly accepted benchmark of affordability, which is that when housing costs are greater than 30 per cent of the disposable income of a household in the bottom 40 per cent of income distribution, the household is deemed to be in “housing stress”.

Its findings are sobering. For a single person on the age pension, there were fewer than 600 properties in Australia that met the affordability criteria to rent. That’s 0.9 per cent of the total rental stock. For an age pensioner couple, 3.4 per cent of properties were found suitable.

For those on other kinds of welfare it was even worse. For someone on youth allowance, the Anglicare survey found eight properties. For a single person on Newstart allowance, there were 10. These are not percentages; they are numbers. Eight and 10 respectively of 65,000 rental properties in the entire nation were affordable.

Things were but slightly better for the working poor. Only about 2.3 per cent of all rental properties in Australia were affordable for a single person on the minimum wage of a little over $33,000 a year.

For a single parent with two young children, and therefore receiving family payments, the figure was 3.3 per cent. Even for a family with two young children, in which both parents worked for minimum wages, only about 24 per cent of properties were suitable.

Treasurer-in-name-only useless-as-tits-on-a-bull Hokey denies Negative Gearing raises rents and house prices. He would, his family use NG and the rentiers vote Liberal. No economist agrees with him. Idiot Costello’s 50% discount on capital gains tax also has to be reversed.

Nevertheless action will have to be taken soon, by whoever is brave enough to bust the Sydney housing bubble.

One of those items people went without was food, she said. “You can skip eating for a day, but if you don’t pay your rent you get thrown out. So food becomes a discretionary item. Over 65,000 Australians are living in food insecurity.”[My emphasis]

Very worth reading in full! Keating’s experiment in ending NG is also covered.

Re: The scourge of negative gearing

Posted: 04 May 2015, 23:38

by Lefty

Nevertheless action will have to be taken soon, by whoever is brave enough to bust the Sydney housing bubble.

Won't be the RBA, regardless of what they say they are really trying to keep it pumping up. Though we're getting close to the ultimate limits of banks passing on cash rates cuts I think.

NG is a barstard of a policy that is impacting on housing affordability and makes a nice tax shelter for the better off - half of it is claimed by the top 10%. Around 95% of NG claims were for pre-existing properties so it adds very little to the houisng stock, just encourages investors to turn over Australia's rental stock faster at higher prices.

NG must go....but it won't be removed under any circumstances. Our pollies are among the biggest beneficiaries with around 95% of them owning investment property portfolios.

Better turn in - night JM

Re: The scourge of negative gearing

Posted: 04 May 2015, 23:41

by HBS Guy

Niters Lefty.

Re: The scourge of negative gearing

Posted: 11 Jun 2015, 09:41

by dreamboat

Neither side of politics could take a policy to remove negative gearing to an election and expect to win. A party in government who removes negative gearing will not get re-elected. Unfortunately, is not the real basis of political decisions ensuring re-election?

Re: The scourge of negative gearing

Posted: 11 Jun 2015, 11:14

by HBS Guy

Don’t agree with that—they would promise to lower house prices.

Re: The scourge of negative gearing

Posted: 11 Jun 2015, 13:33

by dreamboat

Lower house prices may be a side effect of a change in policy (but they may not eventuate), but the direct policy itself to eliminate negative gearing will alienate a lot of voters. With the relatively tight race between the two parties in election results, the policy would be a poison chalice.

Re: The scourge of negative gearing

Posted: 11 Jun 2015, 14:00

by HBS Guy

Well we are headed for recession, into one really, that will be a time to do something about negative gearing.

It will have to be grandfathered—so existing property holdings will still benefit from negative gearing and it could possibly be allowed where an investor builds a new dwelling. Since the top 20% or so highest income earners benefit most from it it will be less painful for Labor to introduce it. Building low cost housing for sale and rent will keep activity going and be a nice stimulus.

Re: The scourge of negative gearing

Both the Grandfather system and limiting NG to new properties are positive moves that will limit further influx of investors to the used property market. Maybe also acceptable to voters?

Re: The scourge of negative gearing

Posted: 11 Jun 2015, 17:58

by HBS Guy

With some money spent building dwellings for those on lower incomes I don’t see why not.

Re: The scourge of negative gearing

Posted: 19 Jun 2015, 10:34

by HBS Guy

With negative gearing, CGT exemption leading to a surge in investors buying houses in Sydney which has increased prices has shown its unattractive consequence: increasing house prices has led to an increase in rents and as sure as night follows day increasing rents has increased homelessness:

So Hokey you fat lump of stupidity and incompetence: house prices in Sydney are NOT affordable, not by first homebuyers, not by many people. YOU have made it affordable and attractive to shonks and spivs with low interest rates (RBA is doing all the heavy lifting in keeping the economy going, but it cannot do that, monetary policy is a brake not an accelerator.)

Re: The scourge of negative gearing

Posted: 28 Jun 2015, 05:16

by ele

Negative gearing means accommodation owners can afford to charge low rents. Without negative gearing they would have to charge much higher rents to cover their costs.

Re: The scourge of negative gearing

Posted: 28 Jun 2015, 10:05

by HBS Guy

Actually, NG means more and more houses are bought by investors which, in Sydney and some other capital cities, means houses are increasingly unaffordable for first home buyers who have to rent. As the house prices rise so do the rents.

Not only can investors (who rarely buy land and build a new house) claim NG they also only pay half of their capital gain when they do sell.

Re: The scourge of negative gearing

Posted: 29 Jun 2015, 08:18

by ele

The main reasons buying new houses is unaffordable is the HECS burden on new professionals, uncontrolled foreign investment in the property market, and the cost and amount of land released by the States. Negative gearing helps keep rents low for those who have to rent, and this is an increasing number because of the HECS burden and because of the destruction of Public Housing stock. Negative gearing is also a way that parents can help children leave home, in these days when they cannot get started themselves easily in either rental or bought premises.

Re: The scourge of negative gearing

Posted: 29 Jun 2015, 10:54

by HBS Guy

Looks like ele is at least partly right—chinese “flight money” is being locked out of countries like the US and Canada and will have to be turned away from here. That will see the growth in the property bubble slow: successive governments have just “kicked the can down the road” afraid of the bubble busting on their watch.

The second tranche of Anti Money Laundering legislation, covering estate agents, is overdue!

Re: The scourge of negative gearing

Posted: 29 Jun 2015, 12:15

by HBS Guy

Treasury has done no analysis on the impact of negative gearing on house prices, and hasn’t been asked to by the Treasurer.

Labor MP Jim Chalmers, who prompted the revelation when he asked Wilkinson to comment on Moody’s analysis that negative gearing adds $44,000 to the cost of an average home, said the lack of tax analysis was “extraordinary”. . . .

Recent surveys by Domain Group show that more than 50 per cent of residents in New South Wales and Victoria, and 47 per cent of Queenslanders, believe that owning their own home is unattainable.

One of the MPs voiced concern that people who are outbid by investors for a home will become part of a class of “tenant serfs”, funding the acquisition of more and more properties by a “landlord class”. . . .

Changes don’t have to be radical. Negative gearing doesn’t have to be abolished; ACOSS has put forward a sensible proposal in which losses on investment properties can only be claimed against rental income and not wages.

Even though the Murray inquiry concluded that negative gearing and capital gains concessions pose a systemic risk, and the tax discussion paper found they cause distortions in the economy, the government has baulked at reform.

Without changes, the rising imbalances in every MP’s electorate between boomers and older Gen Xers who have been lucky enough to ride the two-decade surge in housing prices, and anyone under 45 who hasn’t been so lucky -- the owners and the renters -- will only worsen.

Not just foreign buyers causing house prices to soar, NG and the CGT exemptions are enjoyed most by the top 20% richest people. Losses should be realised when the property is sold.

Re: The scourge of negative gearing

Posted: 19 Aug 2015, 19:46

by ele

Many youngsters cannot afford to rent at market rates now, as well as not being able to buy into the market. Negative gearing helps many parents buy accommodation their children can afford to rent. If you remove negative gearing all that will happen is that rents will shoot up.

Re: The scourge of negative gearing

Posted: 19 Aug 2015, 20:10

by HBS Guy

Well, the Sydney housing bubble is about to burst, will change the situation. Not just negative gearing but the capital gains tax exemption has sent house prices soaring as investors crowd out home buyers.

Re: The scourge of negative gearing

Posted: 18 Feb 2016, 18:23

by HBS Guy

Peter Martin pulling no punches re negative gearing:

At the heart of negative gearing is a lie, or perhaps a mistake. Most spending isn't tax deductible, but spending for the purpose of earning an income is. The lie is that the interest payments and the rates and other expenses involved in renting out a property are for the purpose of earning an income. Somehow there has been a mistake and the rent hasn't covered the costs, but because the intention was to earn an income the costs should be written off against other income.

Our tolerance of that lie institutionalises dishonesty, and it institutionalises losing.Before John Howard halved the headline rate of capital gains tax at the turn of the century, negative gearing was relatively unattractive. Landlords as a group made money. In 1999-2000 they made a combined $219 million. Ever since then they've lost money. In 2012-13 they lost a net $5.4 billion.

Capital gains matter because they are the mechanism negative gearers use to make money. The profits they make from eventually selling their properties are meant to exceed their annual losses from rent. A cut-rate capital gains tax makes those profits more likely. Investors can write off their annual losses at the full tax rate and pay tax on their eventual profits at only half the rate.

But there are wider benefits, or so we have been told.

Howard's tax advisor John Ralph said the cut would "encourage a greater level of investment, particularly in innovative, high-growth companies". Instead, investors dived into real estate. Before the change, houses cost 2.5 to 3 times household disposable income. Afterwards, they cost 4 times disposable income.

At the last count 1 in every 7 taxpayers were landlords.

But they've been increasing the stock of houses, right? Not much lately. Back the 1980s 1 in every 5 new investor loans was used to build a home. Now it's 1 in every 35.

So Shorten and Bowen (Shadow Treasurer) are on the right track, removing NG for new investors except if they build and cutting the CGT exemption. Just more Howardista waste and profligacy to be cut from the Budget. Christ that little turd did some serious harm to the nation!

Re: The scourge of negative gearing

Posted: 27 Feb 2016, 07:41

by Lefty

Good on Shorten! I get a bee in my bonnet about this one.

NG is one of the more important of a raft of factors that have ultimately led to the next generation increasingly becoming priced out of home ownership. The notion that NG encourages more home building and increases the stock of housing has been demonstrated to be completely spurious, with crystal clarity. Out of every $100 spent on NG,d investment property, about $95 is spent on buying pre-existing houses, not building new ones. It does virtually nothing to stimulate building and increase supply, it merely allows and encourages investors to out-compete our young people who are trying to put a roof of their own overhead - the investor does not want the house, they want the reduction in their taxable income and the fat capital gain.

Vast sums being claimed on NG but fuck all new houses being built because of it here.....

The policy proposal is that existing NG arrangements be grandfathered. While I find it distasteful that the great bulk of the value of the existing claims will therefore continue to be made - largely by those in the upper two income quintiles who hold the majority of the value of it - the fact is that it isn't about letting the rich get away with it, it's about protecting the poor. By denying NG'd landlords the argument that they need to hike the rent to cover their losses. Grandfathering means there can be no excuse for rental hikes.

New NG claims will of course still be able to be made - as long as you build the house or unit or buy it new off the plan. Each individual new NG claim will then have been seen to actually have stimulated new building and increased supply, which was the whole argument behind the tax claim in the first place, one which is currently not occurring despite the huge sums being claimed by the better-off.

So how will this affect the housing market and house prices? Difficult to say. With the deduction claimable only on new builds, there will be much less of the current incentive for investors to buy up housing and horse-trade it back and forth between themselves - if the next investor will not be able to make the claim they will be less likely to want to buy, making buying for the first investor less attractive in the first place. But that does not necessarily imply less demand I think since investors - just like anyone else - can only live in one house at a time, and are simply supplanting other buyers like owner-occupiers who cannot claim the deduction. Take away the investor and standing behind most of them you will find an exasperated young couple wanting to buy a family home but being denied the opportunity by this ridiculous rort.

If enacted, this policy could see housing investment go back to what it always was - a LONG-TERM proposition. Build a house, create some economic activity, provide a rental home and then sell it for a profit in 20 years or so, or whatever. Right now it's mostly: snatch an existing house away from those starting out, add nothing to supply, rort the tax system and then sell it for a big capital gain in a few years, grossly inflating living costs for the next generation.

Negative gearing of pre-existing property is simply a giant tax dodge for the mostly well-off that does nothing to stimulate housing supply and prices the next generation out of affordable home-ownership - it has to go.

Re: The scourge of negative gearing

Re: The scourge of negative gearing

The campaigns arguments (for continuing huge rorting by the well-off)....

1. Property is vital to jobs

Not only is property Australia’s biggest industry, it’s one of the few sectors of the economy in a growth phase. It makes up one ninth of Australia’s GDP and employs 1.1 million workers.

Putting a brake on the property industry right now is slightly south of crazy. The construction of a typical house uses up to 40 tradies and subbies. That’s a lot of jobs that depend on investment in housing.

Yes, housing construction does create jobs - and that's the point, negative gearing of housing is almost exclusively claimed for pre-existing housing, not new builds. Recycling the same house back and forth many times while claiming a fat tax deduction does not require 4 tradies, let alone 40. This argument obfuscates the point.

2. Our population just hit 24 million

Australia is growing – and faster than we thought. We’ve already got a housing supply crisis. Do we really want to make it worse by taking away the incentives to invest in housing? Just over one quarter of new dwelling construction is financed by investors each year. Fooling around with negative gearing could see investment grind to a halt.

We don't really have a housing supply crisis, we have affordability issues - in part created by negative gearing. The above paragraph attempts to blur the issues at hand by conflating investors who do build with the NG claims which are made almost entirely on pre-existing. The article doesn't say exactly which investors it's talking about - foreign investors who cannot legally claim NG have become yet another issue in Sydney and Melbourne. Buying existing livable houses/units, knocking them down and then re-building on the same site may create some building work but does nothing for supply. In fact, some apartment complexes owned by well-heeled foreigners appear to be kept empty, recording no water or electricity usage. Knocking down an existing dwelling, re-building on the same site and then not renting them out so they remain in "pristine" condition and retain maximum resale value does not merely not add to supply - it actually takes some away. The FIRB finally appears to have done something about this (can't find the link at present). But none of this has anything to do with NG - this argument merely obfuscates the point.

It even further attempts to obfuscate the point by trying to misdirect attention away from the fact that Labor's proposal is that NG still be claimable on new builds. This makes sense - if the policy as it currently stands is costing enormous sums of money but having little to no positive effect on supply, then adjust the way the policy is applied so that it does. The policy then becomes beneficial to the country at large rather than the simple tax shelter for the rich that it currently is. Sounds like a good proposal to me. But the NG lobby appears to be suggesting that it will be scrapped altogether, which is garbage. Pure scare tactics.

3. It’s been around 100 years

That’s right – 100 years we’ve had negative gearing. Politicians from all parties are floating changes to negative gearing. They can’t resist the temptation to tinker with something that is working well.

Playing with negative gearing means changing how, why, where and when people invest. When our politicians make changes, things invariably get more complex and more expensive.

Yes it has been around for a long time. But the effect it has will depend upon what is happening in the present and how it interacts with present-day policies and situations, which are always changing and evolving. It wasn't so long ago that most landlords turned a profit and the majority built their investment homes - todays situation has stood that on it's head. So it is indeed working well - as a tax dodge for those at the top with harmful side-effects for those lower down. So the reply to "It's been around for 100 years" is: yes - but so what? This argument obfuscates the point.

4. Over two million renters don’t know what will happen

Australia has 2.3 million renters. Take away negative gearing and landlords may need to make up their losses through higher rents.

Not only that, if you take away negative gearing, the impact on the rental property market could be profound. Supply might be hit in different ways from city to city, or it could be nation-wide.

The fact is those people tinkering with it simply don’t know what will happen.

Now this one is really blatant - there has been no proposal to remove existing arrangement and the property lobby knows this. Insinuating that millions of renters will be slugged with rental hikes is a simple, outright lie. This argument does not merely obfuscate the point, it is pure bullshit. It then goes on to speculate on the possibility some dark consequences which it does not identify but sound scary nonetheless.

5. We need more people funding their own retirement, not less

Consider this : 840 000 Australians on less than $80 000 are planning their future using negative gearing. That includes 53,800 teachers, 35,900 nurses, 22,600 hospitality workers and 10,400 police and emergency services workers. That’s an awful lot of mums and dads. Knocking over the plans of these people is no small thing.

These folk are just like you – not rich, but trying to do the right thing and build an investment for a rainy day.

Isn’t it better to have more self-funded people in retirement not less?

This argument is simple horse shit - the vast majority of those who claim negative gearing are NOT ordinary income earners. BIL and family have recently been forced to move back here from the Sunshine coast since their tenents vacated their house in Calliope with the end of the construction boom. They say they cannot afford to live down there and pay the mortgage on an empty house here. He works in the mines and so is on good money. She is a mortgage broker and would know all the lurks and perks but they cannot afford the upfront losses of waiting to make a NG claim. So if these people can't afford it - exactly who is it who is claiming these vast sums? Here is the very crux of the NG issue itself - people with average to very small taxable incomes are shown by the tax office stats to be claiming NG, often on property portfolios worth millions. People who even the dodgiest of lenders would never lend that much to and law-abiding lenders would not lend to at all. The keyword here is TAXABLE income - these people are generally high-income earners who have used NG to reduce their taxable income, sometimes to almost nothing.

That is an absolute rort of the system, one with harmful side-effects for the next generation in particular. The NG lobby's whole argument is simply about blurring this fact as much as possible so the rich can keep their massive tax dodge. Fuck 'em! It's time for it to go!

Re: The scourge of negative gearing

Posted: 28 Feb 2016, 06:35

by Lefty

Naturally, Malcom continues to dribble about the harm removing it would cause. For obvious reasons - many of the people with the most to lose by ending the rort live in Blue Ribbon Liberal seats.

Re: The scourge of negative gearing

Posted: 28 Feb 2016, 07:41

by HBS Guy

Yup.

That campaign is dishonest and comes from greasy rent seekers—the Libs’ natural constituency.

The harm NG did was really increased when the idiot Howard halved the capital gains tax, a move of pure idiocy, just rewarding speculation and rent seeking.

Labor needs a couple more planks in their NG package.

1. A program of building affordable housing

2. Much more protection for tenants. You should be able to sign and tranfer/sell a 20 year lease which means you cannot be evicted (except for non–payment of rent, of course, etc) even if the property is sold.

3. Offer good opportunities for PRODUCTIVE investment! Roll out a real, world class NBN, offer good R&D tax concessions, great education boosting universities, encouraging Unis to commericalise discoveries etc. Nothing much can be done without a real NBN tho.

Re: The scourge of negative gearing

Posted: 28 Feb 2016, 08:36

by Lefty

Absolutely!

Yep, curtailing NG in the manner proposed is a good start but we will need more. Housing affordability is the issue that needs addressing here. Improved affordability for our young people implies lower prices - we have already taken interest rates almost as low as they can go, monetary policy is now fucked when the next recession hits - and lower prices hurt investors hip pockets. Bit hard to see a win/win here. The greed of investors to cash in by owning more houses than they can live in is currently supplanting the need of the next generation for affordable housing.

The proposed changes to NG would stop the current massive rort from getting bigger each and might stop the affordability situation from continuing to endlessly deteriorate but won't of itself fix it I think. It's a good step in the right direction but won't be the be all and end all.

If I recall, NG claims did decelerate - but that was because of falling interest rates. Now that they can't get much lower, I predict NG will begin to head for the sky once more. Unless stopped.

A program of building affordable housing

That might be a good place to direct some of the money saved by ending the NG rort.